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Kingsway Announces Fourth Quarter and Year-End 2018 Results

ITASCA, IL , March 14, 2019 /CNW/ - (KFS) Kingsway Financial Services Inc. ("Kingsway" or the "Company") today announced its operating results for the fourth quarter and year ended December 31 , 2018.  All amounts are in U.S. dollars unless indicated otherwise.

Management Comments
John T. Fitzgerald , President and Chief Executive Officer, stated, "While we made substantial progress in our efforts to restructure the business, 2018 proved to be a challenging year for the company.  In the fourth quarter, continued progress in our Extended Warranty segment only partially offset the large realized and unrealized losses in our passive investment portfolio.  These investment losses stem largely from our indirect investment in the common equity of Limbach Holdings, Inc., which suffered a large decline in the fourth quarter.  We plan to issue a shareholder letter, which will contain a detailed analysis of our full-year 2018 performance, when we file our 2018 Annual Report.  Additionally, we were pleased to announce recently our acquisition of Geminus Holding Company, Inc., which demonstrates tangible execution of our stated strategy of building the Extended Warranty segment."

Operating Results
The Company reported loss from continuing operations of $11.9 million , or $0.54 per diluted share, in the fourth quarter of 2018, compared to income from continuing operations of $15.3 million , or $0.48 per diluted share, in the fourth quarter of 2017.  

For the year ended December 31, 2018 , Kingsway reported loss from continuing operations of $20.7 million , or $0.98 per diluted share, compared to income from continuing operations of $2.6 million , or loss of $0.10 per diluted share, in the prior year period.

The fourth quarter and full-year 2017 results include a $19.0 million income tax benefit related to the Tax Cuts and Jobs Act.

The loss from continuing operations for the fourth quarter of 2018 reflects the following:

  • Operating loss of $1.4 million
  • Net investment loss of $8.2 million , which reflects a $7.8 million investment loss on limited liability investment, at fair value and a $1.0 million investment loss related to the equity pick-up on one of the Company's limited liability investments focused on making early venture investments
  • Interest expense not allocated to segments of $1.6 million


Following are highlights of Kingsway's fourth quarter 2018 operating loss.  Operating loss reflects the Company's core operating activities, including its reportable segments and corporate operating expenses. 

  • Operating loss was $1.4 million for the fourth quarter of 2018 compared to $0.7 million for the fourth quarter of 2017.
  • Book value decreased to $0.89 per share at December 31, 2018 from $2.02 per share at December 31, 2017 . The Company also carries a valuation allowance, estimated to be approximately $7.85 per share at December 31, 2018 , against the deferred tax asset, primarily related to its loss carryforwards.


The following non-recurring items contributed to Kingsway's fourth quarter 2018 results.

Sale of Mendota
The Company closed on October 18, 2018 its previously announced sale of Mendota.  Included in the Company's net loss for the three months ended December 31, 2018 is loss from discontinued operations, net of tax, of $0.3 million and a gain on disposal of discontinued operations of $0.7 million .  As a result of the Company's sale of Mendota , its financial statements for the fourth quarter and year ended December 31, 2018 reflect a loss on disposal as well as the classification of Mendota , previously disclosed as part of the Insurance Underwriting segment, as a discontinued operation at December 31 , 2018.  The results of Kingsway Amigo Insurance Company, which has been in runoff since 2013, will continue to be reported as part of continuing operations; however, the Company will no longer report a separate Insurance Underwriting segment.

Change in Jurisdiction of Incorporation
Effective December 31, 2018 , the Company changed its jurisdiction of incorporation from the province of Ontario to the State of Delaware in the United States of America .

About the Company
Kingsway is a holding company that owns or controls subsidiaries primarily in the extended warranty, asset management and real estate industries.  The common shares of Kingsway are listed on the New York Stock Exchange under the trading symbol "KFS."

Consolidated Statements of Operations
(in thousands, except per share data)








Three months ended December 31,


Years ended December 31,



2018


2017


2018


2017

Revenues:


(unaudited)


(unaudited)


(unaudited)



Service fee and commission income


10,035


10,069

$

38,849

$

30,807

Rental income


3,341


3,346


13,376


13,387

Other income


112


79


416


681

Total revenues


13,488


13,494


52,641


44,875

Operating expenses:









Claims authorized on vehicle service agreements


1,505


1,261


5,711


5,327

Loss and loss adjustment expenses


3


138


1,631


404

Commissions


1,035


932


3,756


3,086

Cost of services sold


1,566


1,989


7,315


6,535

General and administrative expenses


9,289


8,298


29,367


27,038

Leased real estate segment interest expense


1,533


1,558


6,171


6,264

Total operating expenses


14,931


14,176


53,951


48,654

Operating loss


(1,443)


(682)


(1,310)


(3,779)

Other revenues (expenses), net:









Net investment (loss) income


(8,179)


842


(8,876)


968

Net realized (losses) gains



307


(405)


306

(Loss) gain on change in fair value of equity investments


(701)



250


Non-operating other income


13


38


1,032


697

Interest expense not allocated to segments


(1,615)


(1,341)


(6,091)


(4,977)

Amortization of intangible assets


(543)


(286)


(2,442)


(1,152)

Contingent consideration benefit





212

Gain (loss) on change in fair value of debt


791


(2,718)


(1,720)


(8,487)

Gain on disposal of subsidiary




17


Equity in net (loss) income of investee


(194)


772


(817)


2,115

Total other revenues (expenses), net


(10,428)


(2,386)


(19,052)


(10,318)

Loss from continuing operations before income tax expense (benefit)


(11,871)


(3,068)


(20,362)


(14,097)

Income tax expense (benefit)


67


(18,330)


358


(16,694)

(Loss) income from continuing operations


(11,938)


15,262


(20,720)


2,597

Loss on liquidation of subsidiary, net of taxes



(494)



(494)

(Loss) income from discontinued operations, net of taxes


(331)


(15,212)


1,738


(14,252)

Gain (loss) on disposal of discontinued operations, net of taxes


664



(7,136)


1,017

Net loss


(11,605)


(444)


(26,118)


(11,132)

Less: net income attributable to noncontrolling interests in consolidated subsidiaries


115


4,053


468


4,337

Less: dividends on preferred stock, net of tax

$

(295)

$

137


96


350

Net loss attributable to common shareholders

$

(11,425)

$

(4,634)

$

(26,682)

$

(15,819)

Loss (earnings) per share - continuing operations:









 Basic:

$

(0.54)

$

0.51

$

(0.98)

$

(0.10)

Diluted:


(0.54)


0.48

$

(0.98)

$

(0.10)

Earnings (loss) per share - discontinued operations:









 Basic:

$

0.02

$

(0.72)

$

(0.25)

$

(0.64)

Diluted:

$

0.02

$

(0.68)

$

(0.25)

$

(0.64)

Loss per share – net loss attributable to common shareholders:









 Basic:

$

(0.52)

$

(0.21)

$

(1.23)

$

(0.73)

Diluted:


(0.52)


(0.20)

$

(1.23)

$

(0.73)

Weighted average shares outstanding (in '000s):









Basic:


21,788


21,708


21,728


21,547

Diluted:


21,788


23,265


21,728


21,547

 

Consolidated Balance Sheets
(in thousands, except share data)








December 31, 2018


December 31, 2017

Assets


(unaudited)



Investments:





Fixed maturities, at fair value (amortized cost of $12,432 and $14,707, respectively)

$

12,260

$

14,541

Equity investments, at fair value (cost of $2,274 and $4,854, respectively)


856


4,476

Limited liability investments


21,456


4,922

Limited liability investment, at fair value


206


5,771

Other investments, at cost which approximates fair value


2,079


2,321

Short-term investments, at cost which approximates fair value


152


151

Total investments


37,009


32,182

Cash and cash equivalents


31,914


20,774

Investment in investee


2,633


5,230

Accrued investment income


203


331

Service fee receivable, net of allowance for doubtful accounts of $58 and $318, respectively


4,570


4,286

Other receivables, net of allowance for doubtful accounts of zero and zero, respectively


8,748


6,536

Deferred acquisition costs, net


6,904


6,325

Property and equipment, net of accumulated depreciation of $15,958 and $11,683, respectively


103,142


108,008

Goodwill


73,928


80,112

Intangible assets, net of accumulated amortization of $10,775 and $8,333, respectively


83,816


80,062

Other assets


4,472


4,302

Assets held for sale



136,452

Total Assets

$

357,339

$

484,600

Liabilities and Shareholders' Equity





Liabilities:





Accrued expenses and other liabilities

$

17,007

$

12,308

Income taxes payable


2,431


2,644

Deferred service fees


46,016


40,873

Unpaid loss and loss adjustment expenses


2,073


1,329

Bank loan


3,917


4,917

Note payable


182,548


186,469

Subordinated debt, at fair value


50,023


52,105

Net deferred income tax liabilities


28,532


28,745

Liabilities held for sale



105,900

Total Liabilities


332,547


435,290

Class A preferred stock, no par value; unlimited number authorized; 222,876 and 222,876 issued and outstanding at December 31, 2018 and December 31, 2017, respectively; redemption amount of $5,572


5,494


5,461

Shareholders' Equity:





Common stock, no par value; unlimited number authorized; 21,787,728 and 21,708,190 issued and outstanding at December 31, 2018 and December 31, 2017, respectively



Additional paid-in capital


354,360


356,021

Accumulated deficit


(381,203)


(313,487)

Accumulated other comprehensive income (loss)


40,507


(3,852)

Shareholders' equity attributable to common shareholders


13,664


38,682

Noncontrolling interests in consolidated subsidiaries


5,634


5,167

Total Shareholders' Equity


19,298


43,849

Total Liabilities, Class A preferred stock and Shareholders' Equity

$

357,339

$

484,600

 

Forward-Looking Statements
This press release includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that are not historical facts, and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. Words such as "expects," "believes," "anticipates," "intends," "estimates," "seeks" and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect Kingsway management's current beliefs, based on information currently available.  A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements.  For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the section entitled "Risk Factors" in the Company's Quarterly Report on Form 10-Q for the period ended September 30 , 2018.  Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

Additional Information
Additional information about Kingsway, including a copy of its 2017 Annual Report and filings on Forms 10-Q and 8-K, can be accessed on the Canadian Securities Administrators' website at www.sedar.com, on the EDGAR section of the U.S. Securities and Exchange Commission's website at www.sec.gov or through the Company's website at www.kingsway-financial.com

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SOURCE Kingsway Financial Services Inc.


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